Audio 3:23
G7 intervenes to stabilise Japanese currency

Peter Ryan
Fri 18 Mar 2011, 1:43 PM AEDT

The G7 nations have agreed to help Japan lower its soaring currency by selling yen, in an effort to aid its disaster-hit industries. The US, UK, European Central Bank and Canada have agreed to off-load some of their yen holdings to help the Bank of Japan bring the yen down from its highest level against the greenback since World War II.

Transcript

ASHLEY HALL: In a co-ordinated global strategy the Group of Seven nations has intervened in foreign exchange markets to reverse the surging value of the Japanese yen.

The move has been backed by the US, Britain, Canada and the European Central Bank and it's seen the Australian dollar regain all of yesterday's losses against the yen.

The G7's action comes after a spike yesterday pushed the yen to its highest level against the US dollar since World War II.

I'm joined in the studio now by our business editor Peter Ryan.

And Peter yesterday as I mentioned, we saw the yen surge against all currencies including Australia's. What's the G7 done to turn that around?

PETER RYAN: Well Ashley G7 finance ministers discussed the nuclear crisis on a special conference call this morning to determine what the world's economic superpowers could do to underpin stability in Japan.

After quite a brief meeting the G7 expressed its solidarity with the Japanese people but then agreed to a request from the Bank of Japan for joint intervention to stabilise foreign exchange markets after that surge of the yen yesterday.

What we saw was power and strength in a coordinated intervention and the selling of the yen was simply massive. And that's seen almost all of yesterday's spike reversed.

So the Australian dollar is up 4.2 per cent against the yen. And as a result the dollar has also gained against the US dollar, up 0.6 of 1 per cent at 98.9 US cents. And yesterday you'll recall that the Australian dollar fell to close to 97 US cents.

TD securities senior strategist Roland Randall says this will be more than just a brief intervention.

ROLAND RANDALL: We think it will be a fairly relentless process that will happen through the Asia session and then on to the London and North American sessions.

So we'll probably see waves of selling of the yen throughout the next 24 hours. And that should push the yen much weaker against most currencies, most of the major currencies, particularly of course against the US dollar.

ASHLEY HALL: TD securities senior strategist Roland Randall.

Peter what will the intervention do to calm financial markets and help in what will be a long and painful recovery for Japan?

PETER RYAN: Well Ashley that's right. And the spike in the yen which was actually partly driven by speculation was really complicating the bigger picture in Japan where the focus should be on dealing with the nuclear crisis and planning for reconstruction.

One big worry was that that the record high yen against the US dollar and other major currencies would make life pretty impossible for exporters who would see their profit margins tumble.

So now the strategy is for stability and certainty both in Japan and with foreign markets so there's one less factor to deal with in the reconstruction.

ASHLEY HALL: So how have share markets reacted to the intervention just briefly?

PETER RYAN: Well the intervention coincided with the opening of markets in Tokyo. The Nikkei index surged 2.7 per cent. The Australian market was already trading higher before the intervention and it's now up around 0.8 of 1 per cent.